Walt Disney World Discounts, New Attractions, and a Fifth Gate: Implications of the FY 2011 Disney Earnings Call

Disney released and discussed fourth quarter and fiscal year results last week. Overall, Disney shot out the lights, particularly in parks and resorts.

In domestic parks and resorts, small increases in attendance–and small declines in hotel occupancy–were more than made up for in higher realized prices.

The discussion of the these results in the associated earnings call reinforced what Disney has been saying for a while now–discounting will continue to be cut back, and there’s no out-of-the-ordinary domestic theme park capital spend currently planned for after 2012.

DISNEY WORLD DISCOUNTS WILL CONTINUE TO TIGHTEN AND NARROW

Disney’s strategy for coming out of the massive discounting it engaged in at the height of the downturn has been to accept limits in park volume and hotel occupancy if it can get higher prices and per-guest spending instead.

FYQ4 results reinforce the effectiveness of this strategy–although attendance was almost flat (up 1%) and hotel occupancy in fact declined by two percentage points, revenue was up in the domestic parks and resorts by on the order of 9%.  Partly because of this, Disney’s overall Parks and Resorts segment reported an 11% rise in revenues and a 33% rise in operating income compared to the prior year quarter. 

Disney likely will stick to its strategy of scaling back discounts.  That means we can continue to expect to see, compared to prior years, fewer Walt Disney World discount programs, with more blackout dates and smaller overall savings.

CAPITAL SPENDING WILL GO DOWN AFTER 2012, LIMITING NEW DISNEY WORLD ATTRACTIONS BEYOND AVATAR

The earnings call reaffirmed the points about post-2012 capital investment that Disney has been making consistently for a while now–most recently at the Goldman Sachs Communacopia Conference in September.

After 2012, with the multiyear revamps of California Adventure, Fantasyland, and the cruise line complete, Disney expects to return to “normal” levels of capital spend,

More specifically, the half a billion dollars or so it is contemplating putting into Avatar at the Animal Kingdom will come out of that “normal” level of spending, CFO Jay Rasulo said at the Goldman conference.

Some of this, according to Rasulo, comes out of canceling different plans for the Animal Kingdom.  “We’ll just not do something [else] we had planned to do.”

How much does this leave for new attractions at Epcot and Disney’s Hollywood Studios after 2012? 

Not much–the Avatar spending likely will limit what could have been done otherwise–but more than maybe you’d think. 

After all, in the last ten years, “normal” levels of capital spend yielded Soarin, Mission: Space, Lights Motors Action, Toy Story Mania, Expedition Everest, and major re-dos of Space Mountain and Star Tours. 

Looks to me like there’s scope in there for at least something at Epcot or the Studios…

BUT ALL DISNEY WORLD EXPANSION BETS ARE OFF AFTER MARCH 31, 2015

But here’s the question–especially for those of you waiting for my next post on the 5th park at Walt Disney World–when does Disney leave this post-2012 “normal” capital cycle and begin again massive spends at Walt Disney World?

Well, it won’t be before March 31, 2015. 

Disney has told the capital markets that it’s going into a normal capital spend cycle, and it won’t change that lightly.  Events between now and then may push spend down, but management credibility would be shot if it announced it was spending more.

However, these forecasts belong to current management, and not only can but likely will change when Disney has a new CEO who can establish a different direction.

Disney announced in October that Robert Iger would be stepping down and a new CEO named on March 31, 2015. (Iger would remain as chair through June 2016.)

So that’s the earliest date for a redirection of Disney World’s spending plans and capital commitment to a fifth gate.  The new CEO almost certainly will have different capital plans than current management.  Part of the board’s evaluation of CEO candidates will be the new directions each intends to push the company in.

Major planning for new spends may be developed before then, but the board won’t publicly commit to them until it gets its new CEO’s overall strategy for Disney. 

Until then, after 2012 it’ll be “normal capital” for Walt Disney World, with Avatar taking the lion’s share.